9 mars 2011

An alternative to pharmaceutical patents

Yesterday we discussed pharmaceutical patents in the Green Group in the European Parliament, so I republish the Pirate Party’s proposal here. This text is also available in Swedish.

Pharmaceutical patents are harmful

Patents on drugs, or pharmaceutical patents, have many negative effects.

Pharmaceutical patents prevent hundreds of thousands of people in poor countries from receiving the drugs they need, even though the drugs exist and could save their lives.

Pharmaceutical patents distort the pharmaceutical research priorities, since it becomes more profitable to treat the symptoms of diseases that come from a high standard of living, than to cure poor people from malaria.

Pharmaceutical patents continue to lead to ever increasing costs for drugs in Sweden and Europe, outside any form of political control

Are pharmaceutical patents necessary?

Despite all these negative effects, there are many people who defend pharmaceutical patents, and say they are nevertheless necessary. Pharmaceutical research is very expensive, so we have to make sure it is properly funded. Otherwise we wouldn’t get any new drugs in the future, and that would be even worse.

”Because it is so easy for anybody to copy a pharmaceutical substance that has cost billions in research money to develop, we unfortunately have to let the pharmaceutical companies have monopolies on new drugs,” those who defend pharmaceutical patents say.

But that is not true.

The first part of the argument is of course valid. One way or another we have to make sure that there is serious money available for pharmaceutical research.

But the claim that pharmaceutical patents is the only conceivable system for raising that money, is simply not true.

Click to enlarge

The government pays for the research today

Today it is already the public sector (henceforth called ”the government”) that pays for the bulk of all drugs that are used in Europe, thanks to various systems for universal medical coverage. (See for example page 37 in this report from EFPIA[cached], The European Federation of Pharmaceutical Industries and Associations.) It is the government that pays for the pharmaceutical research today, by paying high prices to the pharmaceutical companies for patented drugs.

So there is no natural law that says that patents are the only way to get new drugs developed. If ”the government” in the different countries funded the research directly, and made the results freely available, this would be at least as reasonable as today’s model, where the government instead creates and maintains private monopolies for the pharmaceutical companies.

The relevant question is which model provides the most efficient and cost effective way of funding pharmaceutical research. Because nobody claims that pharmaceutical research is cheap. The average cost for developing a new drug is just over a billion US dollars.

But considering that ”the government” already provides most of the income for the pharmaceutical companies, a reasonable first step would be to find out how much of that income actually goes to research.

Fortunately, this is very easy to do, as all the big pharmaceutical companies have their annual reports available online. As an example, we can look at the numbers for Novartis (page 143), Pfizer or AstraZeneca.

They all spend around 15% of their revenues on research. The other 85% go to other things, according to their own figures. The numbers are typical for the industry.

So the question is: does the patent system really give us, the taxpayers, the maximum amount of pharmaceutical research for the money we are spending on drugs? Or is there room for improvement, when even the pharma companies themselves admit spending 85% of the money we give them on other things?

If the government would instead take 20% of what it currently spends on drugs, and allocate it directly to pharmaceutical research, there would be more money than today for the research. If the results are made freely available, the pharmaceutical companies would be able to produce modern drugs without spending any money on research themselves. All that would remain for the government would be to pay for the actual substances.

Patent free drugs are cheap

How would it affect the price of drugs if there were no pharmaceutical patents? To answer this question, we can look at the experience we have from patent free generic drugs. In that market segment we already have a situation where different (private) manufacturers of the drugs compete with each other, and the government buys from from cheapest and best ones.

In the case of generic drugs we are talking about drugs that are more than 20 years old. For newer drugs the pharmaceutical companies add an even greater surcharge, so the actual savings if pharmaceutical patents are abolished would almost certainly be considerably more than 70%. But let us still be conservative and use that number.

Half the cost, more money to research!

The price for a substance will then drop to 30% if we get rid of the patents. Add 20% to fund future research according to the proposal presented here, and we have reduced the government’s bill for drugs to 50% of what it is today. We would cut the cost in half, while still giving more money to pharmaceutical research.

Isn’t this an idea worth exploring?

What arguments are there for keeping the pharmaceutical patents, and rejecting the cost savings and other benefits possible if we choose a different approach?

Summary

Let us summarise the main points of the proposal:

In Europe it is already the government that provides most of the revenues for the pharmaceutical industry, thanks to universal medical coverage.

The pharmaceutical companies spend 15% of their revenues on research, according to their own numbers. The remaining 85 are spent on other things (mostly marketing and profits).

If the government would instead take 20% of what it currently spends on drugs, and allocate that money directly to pharmaceutical research, there would be more money for research. The pharmaceutical companies wouldn’t have do do any research themselves, so there would be no need for pharmaceutical patents, as they would have no research costs to recoup.

Without patents the price of the actual substances drop by at least 70% when they are manufactured on a free market with competition, instead of by a monopolist.

So: compared to today’s system the government’s cost would be 20% (for research) plus 30% (for the substances). A total of 50% of today’s costs, and still more money than today for research.

Realistic on the European level

An obvious counterargument would be that this is not something that Sweden alone could reasonably do. This is true. But on the European level it is quite doable.

If the European governments wanted to, they could easily decide to get rid of pharmaceutical patents, and instead allocate sufficient funds directly to pharmaceutical research. Whether a country recognises patents or not is entirely up to the legislative body of that country to decide. And it is already the government that pays most of the pharmaceutical bill in all European countries.

Europe is big enough and rich enough, both to fund a substantial part of the global pharmaceutical research so that nobody could accuse us of freeriding on others, and to withstand the diplomatic pressures that will no doubt be put upon us the day we choose the open road.

So, to repeat the billion dollar question:

What arguments are there to keep pharmaceutical patents, and to reject the cost savings and improvements that the open road would offer?

The Pirate Party’s position

The Pirate Party wants to abolish pharmaceutical patents as a long term goal, but realises that this requires alternative systems for funding pharmaceutical research. We believe that the introduction of a new system should be done on the European level.

We call on the Commission and other relevant bodies to study the effects of different alternative system, such as the one proposed here, and to take initiatives to put the issue on the European political agenda for discussions.

You also need to consider that Pharmaceutical companies also employ a large number of people in Europe. With reduced profits and a higher competitive field, employement might become the natural adjustment variable. And that’s not a very good thing. You also have to consider than the cost of research increase in time, and in the long term, having research dependant on public budget is a risk more than a good thing as it would also turn the research budget into an adjustment variable when a problem arise (think about the current crisis in Greece). States are more volatile than your average multinational company (that’s the beauty in democracy: elections may change everything; companies leaderboard rarely change, allowing for long terms plan to come out).

It may seems that I’m supportive of private companies in this particular case. I’m not. I believe they are irresponsible entities lead by irresponsible people (although they firmly believe in the contrary; but then, see the Laboratoire Servier affair in France). But then, there is more to consider with respect to pharmaceutical patents than what you provide, and although I am entirely in favor of solutions that doesn’t deprive poor people from the most recent drugs, I also think that removing patents from the systems is something that need a more in-depth study than just throwing a bunch of numbers on Teh Intarweb.

On the subject of employment, the skilled employees will simply go where the money is. If the directly-funded drug research is done in universities, those employees will leave their industry jobs and join academia.

In the next couple of years, most of the pharma industry’s ”blockbuster” drug patents will expire. It’s the so-called ”patent cliff”.

Spin this the right way, and you can argue that the 15% being spent on drug research will shrink radically within the next few years, so a novel funding method is needed that doesn’t depend on industry revenues!

I think one aspect is missing; the focus on blockbuster drugs does not only compete with focus on drugs that are important in the third world; it also competes with drugs badly needed in the rich countries, too.

For example, we are standing on the verge of running out of still-effective antibiotics, and practically no research aims to remedy this situation. If we run out of effective antibiotics, simple surgery will, for instance, suddenly become very risky, if not impossible.

Pharma patents gone, pharma development performed by state isn’t just ”guld och gröna skogar”. Production of medicines isn’t necessarily cheap either (depends on production process, number of assumed patients in need of the drug, etc). An increasingly big problem is that generics companies also perform research, or originator companies merging with generics companies effectively control of both patented and non-patented production and sales. That falls under ”competition law” or ”anti-trust law” rather than patent law (but patents are also a form of distortion of competition, of course).

I think the novel research model suggested for the post-block buster era is suggested as either ”data protection” or ”more mergers”. Novartis, for instance, are broadening their scope of activities. Hoffman-La Rouche are increasing their search for new medicines instead.

One serious problem here is trademarks(!) Most border seizures right now are being made on trademark basis, not patent basis, and if the aim here is to provide an opportunity for imports or transit to the union, a trademark registered by a generic in India cannot be allowed to quickly be registered in Europe (which is currently possible) only to keep the prices up here. Which is currently possible. I’ve written a lot about trademarks. There is a new proposal for changing the Pirate Party stances on trademark law for the Annual Congress 2011.

Short term, it pays off well looking at the Indian Industrial Property Law Section 3(d) or the MSF/UN proposal for patent pools. Extra-territorial application of trademark law is a serious issue. Serious, serious. A previous Belgian approach to research on patented technologies which included also research with patented technologies should be harmonized towards in the Union. Unfortunately, the vast majority of member states do not have this exception (they reduce to experiment ON) but would be a good ITRE battle, for instance.

@ moop
Employment of educated and efficient people is rarely an issue. Researchers will go where research is done, whatever that means.

The problem is more tied to the less educated people that currently work within the industry: if the industry get less money (which would be a good thing for European countries), then it’s going to employ less people (which would be a bad thing for European countries). Balancing the two is not as simple as it seems.

As of today, patents are an important part of the industry ecosystem. Remove patents, and you have to find a new equilibrium (quess who’s going to suffer from this). Any proposal for patent removal must take the social effects of patents under consideration. For exemple, if you implement this solution in France, you’re very likely to get a large number of people fired from their job (yes, the pharma industry is big in France), which means that you’all have to give them social protection. And these quickly add: you’ll easily end up paying loads of money that should be factored in the real cost of the patent suppression operation.

What you are saying makes sense, of course. The thing is, patent policy simply can’t be changed overnight – there needs to be a transitionary period where patents are allowed to run their course for their duration, but no new patent applications are accepted. That will allow for a gradual move to the new research system, and should avoid the adverse ”shock” effects the change could otherwise have. The trick is to find a way to siphon jobs (of all collar colours) directly from the industry into the new research system. Perhaps a purchase of existing industry research facilities is the most cost-effective way to do this…

Moreover, the imminent expiration of the blockbuster patents will drop industry revenues precipitously, by as much as 20% in the next five years. They’ll be forced to downsize regardless of whether patent policy changes (I just hope they don’t create any -more?- deadly epidemics just to sell drugs!).

This is a reprint of an article that have proved to be wrong years ago, because the figures are not true. Christian have had a long time to defend his number, but has chosen not to do so.

1. About Poor countrys
”Pharmaceutical patents prevent hundreds of thousands of people in poor countries from receiving the drugs they need, even though the drugs exist and could save their lives.”
On the WHOs (Worls Health Organization´s) model list of essential medicines of those 319 items only 17 were patented. (Attran, Health Affairs Vol23:3 pp155-165.That gives some perspective. The problem is that the very poor country’s can not afford any medicine. And if there should be a real patent problem the Doha agreement makes it possible to pass the patent anyhow.

2. Unfortunately Christian has seems to be very ignorant about basic economics. About 40% of the cost to develop new drugs is in fact capital cost. This is an interest, which is paid on billions of dollars under the 10 years it takes to develop new drugs. I think most people that own a house will understand that borrow money is not free. But Christian thinks otherwise. That´s why he proposes to socialize the whole industry in order to hide the capital cost
In the balance sheet, the capital is not presented as cost for development. So his conclusion about the 15%R/D is not tru. It is also a well known fact that the big Pharma buys research companies for billions every year. This money is not included i the 15%R/D The profit in the Pharma industry is not higher than in other industries. Astra has lower profitability than Microsoft and lower marketing cost than HM or Electrolux (whole chain)

3. In Sweden the ”public” bill for drugs is ca 33 billion SEK a years. It is well invested money as it reduces cost for periods of illness and hospitals much more (5X?). Only Astras investments is the same order of magnitude!!!!. And of course the money for the drugs comes from different insurance systems and not from tax. As is shown on your diagram (Health insurance system). Or is all car insurance also government money?

The Nazis slogan that if an untruth is repeated many times it will become a truth – will never happen in economics. Figures don´t change.

It is true that this article is a reprint, but you haven’t proven anything wrong.

1. About poor countries
If there is no problem with access to medicines in the third world, please go to Doctors Without Borders and explain to them why they are wrong. Until you have managed to get them to change their position, I believe more in them than in you.

2. Economy
You say that

The profit in the Pharma industry is not higher than in other industries

and give Astrazeneca as an example. What you say is simply not true. According to Astrazenecas 2010 Financial Statement they had a profit margin of 33.0% before taxes. This is way above what is normal in other industries. It may be that Microsoft has an even bigger profit margin (haven’t bothered to check), but they are hardly typical of other industries in that case.

It is of course true that it takes several years to develop a new drug, but that still doesn’t alter the fact that they spend only 15% of their revenues each year on research. Your math relating to that is just confused.

3. In Sweden the ”public” bill…
First, it is of course true that medicines reduce costs and illnesses. I am not proposing that we should stop developing pharmaceuticals. On the contrary, I am proposing a system that will get more money to pharmaceutical research.

Second, comparing Sweden’s expenditure on drugs with Astrazenecas global reserach budget is obviously comparing apples and pears. I am not proposing that Sweden should take over the costs of developing all drugs that we use ourselves. It should be done on the European level. We in Sweden should pay our share.

All drugs that were developed by Europe under this system would be free for anybody in the world to manufacture, just as we would be free to manufacture any drugs developed anywhere else (since we would have no pharmaceutical patents here). According to the proposal, we would be doing more than our share of research in the world, so we would not be freeriding on any other countries. We would just have a better system.

So all your arguments fall flat to the ground. Your claims are simply wrong. And I’m afraid that makes your final words about repeating untruths rather reflect on you. 🙂

It is clear that the patent system is problematic when it comes to distributing costs and setting the direction for research. I think that a primary problem is prising drugs that save lives and are paid either by the state or insurance companies. A monopoly situation here is not ideal. Secondly it is clear that the current system encourages research focusing on treatments of “symptoms of diseases that come from a high standard of living”.

However, public funding of research is also full of problems – how do we agree on what to fund, who is going to pay and how much and how do we gauge success among the people carrying out the research? I am not saying these are unsolvable problems – but they are problems.

I am happy that you for the first time is trying to answer critics of your old paper.

1. Poor country

It is not a question about believing me, but more to realize the impact of the actual situation and facts presented by Attran. (only 17 of 319 is patented)
Further, If you take the time to read the article you are referring to, you should find that this is not about patent at all. What is happening now is the EU (Your backyard) is pressing to implement a Data exclusivity upon India. An IP extension that goes far beyond patents. This will create much more problem than patents ever had and has to be stopped. Why not spend your time on this instead this EMTY balloon. Please read:

By the way Doctors without border is not advocating a total ban of patents – only you do that.

2. Economy
Medivir,Karobio,Linkmed,Creative Antibiotics,Bioinvent, Diamyd Medical is among the hundreds of pharmaceutical companies that are making losses for years. They are also a part of the pharmaceutical industry. Why do you exclude those?
You seems still ignorant about the fact that in order to include total cost for R/D, you have to include cost for capital as well as purchase of research companies of the type I have listed above. The 15% is not reflecting the real investment in R/D at all. You are completely wrong about the savings you claim is possible. I am sorry that your maths is not good enough to realize how a Commercial Company operate. Maybe you can ask for help by a college with financial experience. By the way, I have experience both as investor and in running companies.

3.. In Sweden the ”public” bill…
The reason for comparing the Swedish insurance cost with Astra global cost is that anybody should realize the complexity that comes from the fact that the national insurance companies have to send money around the world and have to make analysis, which research in the world that is worth financing. Bureaucracy is a mild description….

No Cristian, I am sorry. you failed to verify that you stated 50% cost savings exists. There is no support of this elsewhere in the world. I have shown that your figures is wrong because you do not include all costs !! The way of selecting a single successful substance (only about 4% of patented substances is successful) and claim that this reflect the whole situation is stupid and obvious false. If a cost saving of you magnitude was possible, there have to the corresponding profit in the industries bottom line, but there is not.

”Because it is so easy for anybody to copy a pharmaceutical substance that has cost billions in research money to develop, we unfortunately have to let the pharmaceutical companies have monopolies on new drugs,” those who defend pharmaceutical patents say.

Well, even the premise of this is wrong. It does not cost billions in research money to develop a new drug. More like 50-60 million, as new research into drug development costs shows. The billion figure is horribly exaggerated, and so is the need to keep pharma prices high and pharma competition low to justify research.

And by the way … those laws to restrict natural health product availability are more of the same anti competitive strategy of pharma companies. If we lose natural health options (like herbal medicines and vitamin and mineral supplements), if anything other than pharma products cannot claim to be good for health, if homeopathic medicines are severely limited (all outcomes of recent EU directives) then pharma has been successful in eliminating the only serious competition. Keeping people healthy is no target of pharma companies. Profiting from their sickness is.

Thank you for the reference article. It confirms that Christian have missed the cost of Capital (page4) That´s why he is so wrong.

Of course it is easy to believe that the Pharma industry is exaggerating their cost for development of new drugs. But this does not change the fact that there is no 50% to gain as there are no 50% profit in the new drug business.

However in the last years the FDA asks for more and more studies and takes more time before approval. The cost you mention for a new drug 50-60 millions dollars for a new drug is ridiculous. To give you an example Medivir´s most promising drug drug TMC435 (Hepatit C) have just passed Phase 2 and is now entering the costly phase 3. The last 7 years the cost expenditure is 259 million dollars (However this covers development of a paste against Herpes to) Before entering the market they sure will reach 1 billion dollars.

I can agree about the Herbal medicines, but this is not a patent issue.

I have never seen so much critics on a report. I think almost all 300+ comments is negative and the effort of the authors to explain that the figures represents not just new drugs is pathetic. What amuses me most is the claim that because the R/D cost as all other company cost is not taxed, it is a subvention to not pay tax!!!!! Obvious a research project has no income to deduct tax from during the 10 years it takes to reach the market!

Okay, on page 4 in the report Demythologizing the high costs of pharmaceutical research, the author says that the pharma industry is using bogus calculations to inflate their R&D costs. You accuse me (correctly) of not using these bogus calculations, but looking at the figures in the financial statement instead. I cannot see how that should be a problem.

Perhaps you can explain what you mean using Astrazeneca as an example.

According to their 2010 Financial Statement they spent 5,318 million $ on R&D, which is 16.0% of their 33,269 million total revenues.

You claim that this is not a correct way of measuring their R&D costs.

According to you, how much were Astrazeneca’s true R&D costs in 2010, and where in the Financial Statement can we find the numbers that you base your claim on?

@Christian
The figures is not bogus. The author admits that the capital cost should be included in the R&D cost for a specific drug. They think the interest 11% is to high, but ask a bank to borrow you money for 10 years to develop a drug with 4% success rate and listen to their answer. This means that the real cost for the development of a new drug is twice the direct R&D expenses. Astra figures show only the direct cost. This means that the figures is about 30% and not 15%. But to this you should also add the cost of purchasing R&D. As the full report is not published yet, I only found the purchase of Novexel for 457 million USD in the preliminary report. (This figure varies from years.Year 2007 is was 15,6 Billion USD, which is 3x the R&D expenditure that year)

You asked for were those financial cost are shown in the report. You have to go to the balance sheet. Under Depts you find that Astras own capital is 23,412 Billion USD.You can consider this as a loan from the shareholders. These money was thus invested in R&D and the businesses. The annual payment for this was 2010 3,934 Billion USD. This corresponds to 16,8% interest or 11,8% o the revenues.

The conclusion is that even if you take away the high revenue from all the patented projects, keep everything else the same and give nothing to the shareholders the maximum price reduction you can get is 11%. In this comparison we think that all revenue comes from patented projects, which of course is not true. Such a company will of course not survive.

You claim that without patent you can reduce the cost with 50%, which is not true even for the highly profitable Astra. In the total balance you also have to include the research companies eg Medivir that has no profit at all.

Astra is one of the most profitable industries in the business. They have been lucky and have many successful drugs in their portfolio. Still as your own figures shown above they have only 33% margin. With your promised 50% price reduction they go bankruptcy immediately. Of course the 33% profit margin should cover, capital cost, purchase of research portfolios and taxes as well. So the most profitable company cannot meet your promised 50% price reduction. Then of course we have all other research companies that have no profit at all.

Where do you get wrong?

In this business only about 4% av the patented substances is successful (Domeij Thesis KTH). The rest 96% is discarded after various investments. The total cost for the screening and the development of these failures are far far beyond the development cost of the 4%, which is successful. You base your analysis on those 4% and the fact that when a patent expire on a successful drug, the price may fall with 70% (There are a wide variation). From this you state that the total cost/price for all drugs is possible to reduce with 50%. This is obvious a false analysis as you also have to pay for the failures in order to find the good ones. And that goes even if you socialize the whole industry.

To see the R&D cost as a capital cost that should be compared to other investments is relevant when you are making the business case for a particular project, which is why the article discusses the exaggerated assumptions that the pharma industry is making for those calculations. But to include that in the calculation that looks how much is actually spent on research each year, is to count the same cost twice.

You are counting R&D first a a direct cost, but then also adding the cost of not having used the same money for other investments instead. Since you are counting the same money twice, you come up with the figure around 30% instead of the correct figure of around 15%.

In the second part of your comment, you then switch horses in you argumentation, and say that the capital cost of the research carried out should be the share capital of the entire company. This leads you to the conclusion that all the money generated in profits and paid out to shareholders should be counted as having gone to research. This is clearly a ridiculous way of counting.

The argument about failure rate you make in your next comment is irrelevant. It doesn’t matter what the success rate for drug candidates at a certain stage is, since the cost of all failures is already included in the total R&D budget. Regardless of whether the success rate is 4% or one in a thousand, the total R&D cost for all successes and failures together was still 5,318 million for Astrazeneca in 2010.

You are consistently mixing apples and pears in your calculations, so that you end up adding the same cost twice or more, in order to inflate the numbers. But this is not a valid way of calculating.

The fact still remains that of the money that goes to the pharmaceutical companies from the governments of Europe each year, only about 15% goes to R&D.

This is why we can save public money by doing the procurement of pharmaceutical research in a better way, i.e.: through de-linking the research costs from the price of the substances, as has been proposed by many scholars studying the field.

Christian
I don´t know your education, but if a company sells for 100 and the cost is 66 the remaining is 33 (100-67=33) is 33% profit margin ok?
You postulate that the sales is to be reduce with 50%, which means that 50 – 67 = -17. The company is losing money!(-17% margin)
I dont understand how you still try to deny the fact that even one of the most profitable company have money enough to cut the price with the 50%. That you have postulated. PUH

You seems to have problem in discussing this on 2 levels. I try to clearify:

1. Discussing Astras Finances. In order to show the consequences of your reduction of revenue with 50% and how Astra is paying for capital, purchase of external research and taxes. Of course I don´t see direct R/D cost as a capital cost, but having made R/D investment 10 years before you see any income will cause you capital costs. Were are those money coming from? A bank loan? Do you think those cost will disappear if you are a company?
A company of this kind is a sum of all those project you accept has a capital cost.

2. The possibility from the whole industry to cope with your 50%. This includes all companies that are not making profit at all. That´s where the 4% success rate is important and that is were you went wrong

Can you give one example of a Pharma company that has the profit margin above 50%, which is necessary to live after a price reduction of 50%. Astra obvious fails. I can list many thousands that don´t. Hint: look for successful one drug company

I have of course never said that the failure rate of Astras research is not included in their cost.

Your problem is that there are nothing backing up your 50% in possible price reduction in the total drug bill through socializing the industry.

I dont understand how you still try to deny the fact that not even one of the most profitable company have money enough to cut the price with the 50%, that you have postulated for the whole industy. PUH

Marcia Angell, MD provides an excellent analysis of how Big Pharma exaggregate their claim of high R&D costs in her book: ”The Truth About the Drug Companies: How They Deceive Us and What to Do About It”

She points out that Big Pharma book marketing expenses as R&D costs. For example: bribes to doctors in the form of paid ”scenitific” conferences whose only aim is to promote a certain drug; clinical trial whose only aim is to show that blockbuster X is better than competitor Y, consulting fees to professors and MD:s that are nothing but bribes, etc.

Asssume that Big Pharma manipulate their financial statements and you will get closer to the truth.

The problem is that a company’s bookkeeping is rather complex also for a specialist. It is not a misunderstanding, not even the most profitable companies CAN SURVIVE a 50% price reduction is easy to see, and even Chistian admits that there are capital costs in the development of new drugs. They don´t go away. However I did get a hint from the discussion of the pharmamyths paper. Look at a new company to avoid bookkeeping and lets do here ands now. Lets study Medivir.

The company started as a IPO 1996 with the purpose to develop new drugs but we have access to figures from 1999, where they had 343 million SEK cash. The financing investments comes from two parties Shareholders and Drug companies (specific candidates). There is no sells of drugs up to now and still many years to go before positive cash flow.
Figures in Msek.
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 total
Research 213 279 329 264 211 220 330 290 215 174 196 2721
Annual Interest 213 251 263 184 126 110 132 87 43 17 1428
(10%)2000-2011

Over this years, someone has to lend that money and he naturally wants interest. Today this interest is paid from the profit that the patented drugs is creating + payment from the risk that nothing comes out of the research and that the money is gone. Today the stakeholders have a ”demand” on Medivir of 4148 millions on order to get even.
Observe that in Christians proposal, there is no profit which can pay the interest. Of course, all companies like Medivir or Astra has the same interest to be paid from their investment in research. There are no free money in the world.

You mention tax. This is somewhat complex because the tax goes to the state, which also in christian view also pays for the drugs. So if you reduce the price of the drugs you also lose the corresponding tax income.

I hope this is clearing why also Astra in fact is paying much more than the direct cost for their Research. To that you should add, that they also buy research portfolios which for the last 3 years corresponds to a doubling of the annual direct cost for research.

@ Putte
I have no doubt that the Big Pharma ex-aggregate their claim of high R&D costs, especially if there is some sort price control mechanism in place. Otherwise this has no meaning. However calculating R/D cost is a tricky business.
To give you an example: If you launch a new product you can argue that tooling is a part of the D cost and the same goes special machines. They are needed just to launch the product and has no other use. On the other hand you can argue that they are normal production investments. What is the truth? I don´t know, but from what I have seen, the company itself could change the R/D cost 1% up or down if the want to. However include market expenses in R/D is far beyond standard procedures. Certainly I don´t accept their market abuses. But now we discuss patent and economy.

The Pharma is untypical to other companies because the have to invest so much in R/D, perhaps 10 years before they reach the market and if FDA takes another couple of year before approval the cost increases further because of the interest they have to pay one way or another.

I can accept that Christian wants to socialize the Pharmacy industry. (Even if I found it difficult to understand why PP is promoting one low efficiency state monopoly for the eternity instead of many short time monopolies in a market economy). However the reason should not be of economical nature, but rather that he wants to see other priorities than the free market will provide

I guess you can skip the rel=”nofollow”, at the risk of having an automated spam filter suspect that you might be a spam bot trying to increase the search rank of the linked website. Maybe I’ll just ask the guy who taught me to use it why he included it.

Interesting thread. Before reading the counterarguments I thought Christian’s idea sounded quite good, but it’s true that I would never gamble my own money on companies that are still researching their drugs and might go bankrupt rather than ever show a profit. So I have no problem believing that a lot of the industry research costs are ‘hidden’ in companies that most people never get to hear about. And those investors never get their money back. Who will get them to gamble their money on research funded by the government? The tax man?

Playing with numbers is an interesting game in itself. However, from an intellectual perspective I would think most of us agree we need a change where the individual’s (and patient’s) needs are in focus. Understanding the individual rather than details of the business case, serving the patient rather than own profits – how does that sound? Why don’t we return to where science becomes the main driver for investments in innovative progress. A good start is to work collaboratively to find alternatives to patents and the way it blocks imitations of clever inventions.

”I can accept that Christian wants to socialize the Pharmacy industry. (Even if I found it difficult to understand why PP is promoting one low efficiency state monopoly for the eternity instead of many short time monopolies in a market economy). However the reason should not be of economical nature, but rather that he wants to see other priorities than the free market will provide”

1. Christian isn’t promoting state monopoly for the whole pharmacy industry.
2. These patents isn’t a result of a free market, but rather the opposite.

@ Gillsing

All links on this blog is automatically nofollow. That’s the default setting on WordPress blogs.

What you call playing with numbers is called intellectual honesty by the rest of the world.

The patent system have two from a development perceptive good properties
1. Allocate money to risky technical projects. Without financing no progress
2. Increase the spread of technical information as everybody without economical risk automatic disclose the progress

The temporary commercial monopoly is a prize we have to pay, but the good thing is that you for your own use you can benefit all progresses

So far I have seen no alternative with less side effects. But lets hope you can find one.

PS There have never been a correlation between big investment in science and the economical progress of a country.

1. You mean that the production units without marketing and R/D is an industry? Even generic companies have marketing.

2. It is a free market in that sense that everybody is free to invest and patent new products and the consumer is free to make his own choice. Consumer is King. But of course in one aspect the protection against unfair competition temporary stops free riders. I guess that is what you are thinking of.

1. You mean that the production units without marketing and R/D is an industry? Even generic companies have marketing.

What I mean is as simple as this. Christian isn’t propagating for turning the whole pharmacy industry into a state monopoly.

2. It is a free market in that sense that everybody is free to invest and patent new products and the consumer is free to make his own choice. Consumer is King. But of course in one aspect the protection against unfair competition temporary stops free riders. I guess that is what you are thinking of.

1. Patents isn’t a result of a free market.
2. If you are going to use the premise that a market with patents is still a free market ”in a sense”, then you will have to be consequent in that Christians vision of the market is also per your definition a free market. Either way your logic is flawed. You can’t both have the cake and eat it.

To sum up the debate about how much could possibly be saved – we don’t know. In a functioning market there should not be too large margins in the long run, since other actors would move in and try to beat the others to the punch. As a consequence the margins do not tell us if the research money is well spent – a competition situation can lead to ”inventing the wheel twice”. In addition, with the present system there is reason to believe that the costs are inflated. Furthermore (@rutros), this isn’t a fair market since prices for drugs are based on consumer value but 1) the drugs are often not paid by the consumer (in fact often by taxpayers) 2) when drugs prevents deaths, pricing them based on value is problematic to say the least.

Thus the present system sucks (as does democracy [but we have nothing better as Churchill said]) – the question is if there is reason to believe that an alternative system could do a better job.

Public administration of large scale economic activity has proven problematic before. Nevertheless, in my understanding Christian is not suggesting socialisation of the industry, but rather weakened patent protection and increased public spending on research. In practice that means that the production would run as before.

The research could be carried out both in public organisations or by big pharma, which then applies for funding. My question is why do you, Christian and others, think that states can plan, coordinate and execute research more efficiently than private organisations? Is there any way of testing this? What would the incentives be for efficient use of research money?

@ ODEN
Of course patent is not a result of free market. Patent is extending the free market and the market economy, so that more technical projects which else are to risky to be financed can be realized.

Today everybody who has an idea and think that there is a market may ask whoever, which have money, to finance its start to satisfy the suggested market demand

In Christians world, you have to go to some authority board that make analysis if your suggested market need is worth to satisfy or not and if the whole area is prioritized or not. In my opinion this is as far from a free market you can get. Top down instead of bottom up

The problem the socializing is to solve is that the free market only develop products, for which there is paying consumer and the risk is acceptable. This is for instance not the case for poor countries or antibiotics. In my opinion, there are other methods to address this.

@ Erik
Of course the market is a little different in that the choices is not made by the end user but his doctor. Further the insurance system put limits in what is to subsidize. I don´t see the problem in this. It is a border condition of the business.

Your last sentences is correct. Christian claim the his system is 50% more effective.

I’ve discussed the subject of Patent with some people in the pharmaceutical industry.
One of the job they have is not to find a new cure, it’s to find a new cure that don’t use existing patent.
Example: To create something, they need to use ”patent A, patent B” and they can patent C. But they don’t own Patent A and Patent B, so they have to spend more money to find an alternative solution.

The patent system is terribly corrupted. It stops the optimal cure to be created. You create something with side effect because with this cure you can get more benefit.

One of the issue we have in my country is that part of these 85% is used to pay legally the politicians. How can we change something when the people that can change it earn a lot of money?

I have been coming to similar conclusion when thinking about pharmaceutics recently.
The research into pharmaceutics is indeed in the public interest, should be as open as possible (integrating common knowledge and producing new common knowledge) and therefor should be considered a governmental task. However the production and distribution of drugs is a different matter and is completely fine within a free market.

@Gab
What is the problem? Of course, finding a new medicine is by definition to find something that is not patented up to know.If you do understand what new means. In pharmaceutical industry it is not the same as in electronics or mechanical industry, where more than one patent is needed do design a product ( I disregard help systems). You are free to combine drugs and this is what always take place. So you are completely wrong that patent hinders some cure. What is does is to temporary increase the price.

One mistake frequently done is not realizing that there had to be many more or less effective therapies for the same illness. Different individuals react differently to drugs and with different side effects. I have personally experienced this Thank God.

Your claim that someone introduce side effects with purpose is ridiculous. Do you think FDA is sleeping.

@ Pat Mächler. I agree with the research. What about product development? It is not the same as the research. As 96% of the product development goes wrong. Who do you think is most efficient to stop a product development that goes in the wrong direction? The Investor, who put his own money into the project or the governmental board, who is spending somebody else money

Pharmaceutical research is occurring all the time for the express purpose of improving quality of life. researchers patent these drugs not just to protect their intellectual property but to also register significant steps in pharmaceutical .. To patent a pharmaceutical can encourage further innovation in the field whilst also protecting the IP rights of the creators.

@ Christian The Funeral
Christians proposal of 50% cost saving is based on a report, stating that the cost for the insurance system (state) for 10 specific substances was reduced with 70% in average. However 16 % of what is paid goes to the drug stores (state regulation) and not to the medical companies. OK

But how much is in reality paid for the drugs by the society? In Who´s list of 319 most important drugs only 17 was patented give a hint. How is the situation in wealthy countries like Sweden? It is easy to check. On the homepage of Stockholms Landsting , the 50 most expensive drugs are listed (“= state`s bill”)http://www.uppfoljning.sll.se:8080/P…4IAPY.BD0000RU

It is very easy to check, which are patented or not. Do like this, Google with the name of the drug and “generic”. The result is that 17 of the 50 are patented and their total impact is 33% of the State´s bill. My guess is that for the cheaper ones, none patented is even more dominating. And of course on top of that you have to produce the drug (30% of the original price in your own figure and sell it (16%), which further lower the cost for patented drugs.
In fact even if these drugs are produced free of charge and distributed free of charge there are no 50% to gain as you state.

Christian be a man and admit that you are wrong and end this proposal
May it
RIP

[…] monopolies are needed is not only false in an objective light – as in the patent monopolies not being needed at all today for the pharma industry – but more interestingly, Novartis itself was founded in a time […]

[…] monopolies are needed is not only false in an objective light – as in the patent monopolies not being needed at all today for the pharma industry – but more interestingly, Novartis itself was founded in a time […]

[…] monopolies are needed is not only false in an objective light – as in the patent monopolies not being needed at all today for the pharma industry – but more interestingly, Novartis itself was founded in a time […]

[…] monopolies are needed is not only false in an objective light – as in the patent monopolies not being needed at all today for the pharma industry – but more interestingly, Novartis itself was founded in a time […]

[…] monopolies are needed is not only false in an objective light – as in the patent monopolies not being needed at all today for the pharma industry – but more interestingly, Novartis itself was founded in a time […]

[…] monopolies are needed is not only false in an objective light – as in the patent monopolies not being needed at all today for the pharma industry – but more interestingly, Novartis itself was founded in a time and […]

[…] monopolies are needed is not only false in an objective light – as in the patent monopolies not being needed at all today for the pharma industry – but more interestingly, Novartis itself was founded in a time and […]

Very interesting article, and I agree that the financials of these pharmaceutical giants are too complex to understand from a financial report whether you can save 33% or 50%, I personally feel that 33% is worth saving in a worst case scenario but also feel the savings will be much higher due to the 2 major savings that would result from a Government funded research policy.

1. Duplicate research – A huge issue in the race to patent human genes which I see has no benefit for mankind. Lack of duplication would also save and immense amount of animal suffering but that is a different debate.

2. Patent Law – The huge amount of money filing and fighting patents could also be redirected into research or considered an additional saving.

I am afraid I was not able to deduce the exact savings for this from the annual reports linked in this article and I am sure it is meant to be this way.

[…] monopolies are needed is not only false in an objective light – as in the patent monopolies not being needed at all today for the pharma industry – but more interestingly, Novartis itself was founded in a time […]

[…] and hope that the market makes sure enough research just happens anyway. Therefore, we’d like to replace pharmaceutical patents with the system known internationally as delinkage. It means that […]